2 min read.Updated: 19 Oct 2020, 12:48 PM IST Edited By Avneet Kaur
The most common way of buying gold is in the form of jewelry and coins. The taxation for this form of gold depends on the time period for which you held the gold jewelry or coins.
With the festive season around the corner, you must be planning to buy some gold this Diwali or Dhanteras to keep your annual ritual in place. While the covid pandemic has dented investors' finances and sentiments to go for the extra spending on the yellow metal, jewelers are hopeful of this festive season. Gold prices are hovering around ₹50,000 per 10 grams. Gold prices have lost momentum since hitting a record high of ₹56,200 in August. If you are planning to buy gold, you must be aware of income tax implications at the time of selling gold.
There are four ways to buy gold in India -- 1) Physical gold via jewelry or coins 2) Gold mutual funds or ETFs 3) Digital gold 4) Sovereign gold bonds (SGB). When you sell gold, you are taxed and the tax rate depends on the form it is purchased.
Tax on capital gains on physical gold via jewelry and coins
The most common way of buying gold is in the form of jewelry and coins. The taxation for this form of gold depends on the time period for which you held the gold jewelry or coins. It follows the same taxation rules as that of capital gains in debt funds.
If the gold is being sold within three years from the date of purchase, any gains are considered as short-term gains. The short-term capital gains will be added to your income and taxed as per your applicable income tax slab. Gold sold after three years is considered as long-term and long-term capital gains will be taxed at 20% after providing for indexation.
Tax on gains from gold mutual funds, gold ETFs
Gold Exchange Traded Fund (ETF) invests its corpus in physical gold, aiming to track the price of gold. Gold mutual funds in turn invest in gold ETFs. Capital gains from gold ETFs and gold mutual funds are taxed just like physical gold.
Digital gold is a new way to purchase and accumulate gold. Many banks, mobile wallets, and brokerage companies have tied up with MMTC-PAMP or SafeGold to sell gold through their apps. Capital gains from digital gold is also taxed just like physical gold or gold mutual funds or gold ETFs.
Tax on Sovereign Gold Bonds (SGBs)
SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India.
SGBs come with a maturity period of eight years, with an early exit option from the fifth year.
Capital gains arising at the time of redemption of Sovereign Gold Bonds will be entirely tax-free. However, if you exit earlier via the secondary market, capital gains tax will be applied similar to what is applicable for physical gold or gold mutual funds or gold ETFs.
Gold bonds pay interest at the rate of 2.50% per annum and this interest is entirely taxable as per your tax slab. No TDS is deducted.